Google’s Chump Change

The fine the EU slapped on the company earlier this week may have set a record, but it will have to do more to get Silicon Valley's attention.

July 20, 2018

Donald Trump may not know Margrethe Vestager’s name, but he knows he doesn’t like the European Union’s competition commissioner. At last month’s fractious G-7 meeting in Quebec, Trump told Vestager’s boss, EU Commissioner Jean-Claude Juncker, “Your tax lady, she hates the U.S.”

Asked about Trump’s comment at a press conference on Wednesday in which Vestager handed down a record $5 billion fine against Google—which came just over a year after she fined the company a then-record $2.7 billion—Vestager dismissed it. “I very much like the U.S.,” she said. “But the fact is that this has nothing to do with how I feel. Nothing whatsoever. Just as enforcing competition law, we do it in the world, but we do not do it in political context.”

For Trump, the fine is part of a larger trade war, another sign that the European Union has it out for American companies. But what it actually reflects is a decades-long divergence in the way the U.S. and Europe approach regulation and monopolization. Between the fines levied on Google and the EU’s recent adoption of the European online privacy regulation GDPR, which aims to give consumers control over their personal data, there are signs that the divide could grow.

Does that mean we’re on the verge of the “creation of two Googles or two Amazons,” as Wiredsuggested? While the different regulatory regimes have created confusion, the real test will be whether the EU does more than levy fines that the big players in Silicon Valley can write off as the cost of doing business.

When Trump defended Google on Thursday morning, he characteristically made the news about himself.

I told you so! The European Union just slapped a Five Billion Dollar fine on one of our great companies, Google. They truly have taken advantage of the U.S., but not for long!

The EU’s decision to slap Google with a $5 billion fine is not about Donald Trump and it certainly has nothing to do with the trade war that the American president kicked off earlier this year. Vestager’s investigation of Google began eight years ago and is still ongoing. While it’s tempting to treat the fine as a “tariff,” as some in the business media have done, that misleadingly suggests it comes in response to Trump’s protectionist push.

What Trump’s tweet does inadvertently reveal, however, is different attitudes towards tech. For Trump, as for his predecessors, Google is a great American corporation. For the European Commission, it’s certainly an American corporation, but its greatness is where the problem lies.

American antitrust law has been guided by one concept: consumer welfare. Pushed by the conservative jurist Robert Bork, whose 1978 Antitrust Paradoxis enormously influential, the argument is simple: Economic concentration is only bad if consumers suffer, usually in the form of higher prices. One reason why U.S. regulators haven’t acted against tech giants is that the enormous size of an Amazon, Google, or Facebook hasn’t led to the kind of spike in prices you would expect from companies with monopoly-like powers over the market. Quite the opposite: Google and Facebook are free, while Amazon specializes in slashing prices.

The last big antitrust push from the U.S. government was against Microsoft in the 1990s. Steve Lohr, a New York Times reporter and co-author of the definitive book about the case U.S. v Microsoft, told The Ringer: “If you look at this from an antitrust standpoint, it’s hard to see what you do with Facebook, for example. It’s more a privacy issue. It isn’t the abuse of market power in any kind of traditional sense. The consumer harm is qualitative whereas the traditional measurement [has] always been price.”

The European Union takes a more expansive view. Article 8 of the EU Charter of Fundamental Rights is devoted to privacy protection, including personal data. While American antitrust law has been dictated by consumer welfare, the EU has been guided by different principles related to privacy and competition between businesses.

President Trump has suggested that the EU “was set up to take advantage of the United States,” which is not true. But the work done to rein in tech companies has made it clear that the EU thinks that large American corporations, particularly Google, are stifling European firms. “Google has used Android as a vehicle to cement the dominance of its search engine,” Vestager said on Wednesday. “These practices have denied rivals the chance to innovate and compete on the merits. They have denied European consumers the benefits of effective competition in the important mobile sphere.”

The argument here is straightforward: Google uses its Android market share, which may be as high as 90 percent, to push its own applications and platforms, leaving out developers working on competing browsers, search engines, and other applications. In the U.S., this isn’t taken as seriously because it doesn’t harm consumers directly—Google’s consumers don’t feel its market share in their pocketbooks. But the EU is making a broader argument, which is that Google is preventing competitors from sprouting up, which has deep economic effects.

It is, of course, important that Google is based in the United States. Vestager and the European Commission are arguing that it is bad for any company to have this kind of power in Europe, but that it is especially bad that that company is not European.

The actual impact of these fines, however, is unclear. Earlier fines against Google and Apple for anticompetitive practices and tax evasion have done little to scare off either company. The latest fine might set a record, but it’s not going to damage Google’s umbrella corporation, Alphabet, which brought in $110 billion in revenue in 2017 and made nearly $7 billion in profit in the final quarter of 2017 alone.

Google is protesting that the ruling could change its business model: Right now the company gives Android to phone manufacturers for free and monetizes it via app bundling and ad targeting. If it were to start licensing it, that could raise costs for manufacturers and ultimately consumers. But so far this seems to be an empty threat.

That doesn’t mean that the increasingly different approaches to antitrust won’t have consequences. As the implementation of GDPR showed, when American companies rushed to meet standards set for European customers, the regulatory divergence creates confusion for both corporations and consumers. As the EU adds regulation and the U.S. sheds them, this trend will only get worse.

But to get companies like Google and Apple to pay attention and to really reform, Vestager will have to aim higher: not just a higher fine, but the threat of trustbusting.